Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-15T08:37:16.122Z Has data issue: false hasContentIssue false
  • English
  • Français

The Genesis of Home Bias? The Location and Portfolio Choices of Investment Company Start-Ups

Published online by Cambridge University Press:  06 April 2009

Jerry T. Parwada
Jerry T. Parwada
Affiliation:
j.parwada@unsw.edu.au, School of Banking and Finance, University of New South Wales, UNSW Sydney, NSW 2052, Australia.
Get access Rights & Permissions [Opens in a new window]

Abstract

Fund managers' bias toward geographically proximate securities is a well-researched phenomenon, yet the origins of managers' location choices have received little empirical scrutiny. This paper traces the employment and geographic heritage of 358 entrepreneurial fund managers and analyzes the determinants of where they locate their firms and stock selections. The evidence suggests that start-ups tend to be based close to the origins of their founders and in regions with more investment management firms, banking establishments, and large institutional money managers. New money managers show a strong local bias in their equity holdings, three times the levels previously documented for mutual funds. The propensity to invest closer to home correlates strongly with the presence of sub-advisory opportunities from institutional investors in the vicinity. While home bias levels between managers who relocate with their start-ups and the rest of the entrepreneurs are similar, preferences for stocks that were formally local persist.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 1 , March 2008 , pp. 245 - 266
Copyright
Copyright © School of Business Administration, University of Washington 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Almazan, A.; Motta, A. de; and Titman, S.. “Firm Location and the Creation and Utilization of Human Capital.” NBER Working Paper No. 10106 (2003).CrossRefGoogle Scholar
Bartik, T. J. “Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States.” Journal of Business and Economic Statistics, 3 (1985), 14–22.CrossRefGoogle Scholar
Carlton, D. W. “The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables.” Review of Economics and Statistics, 65 (1983), 440–449.CrossRefGoogle Scholar
Chevalier, J., and Ellison, G.. “Career Concerns of Mutual Fund Managers.” Quarterly Journal of Economics, 114 (1999), 389–432.CrossRefGoogle Scholar
Christoffersen, S., and Sarkissian, S.. “Are Fund Managers Better in Financial Centers?” Working Paper, McGill University (2004).Google Scholar
Coval, J. D., and Moskowitz, T. J.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.CrossRefGoogle Scholar
Coval, J. D., and Moskowitz, T. J.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.CrossRefGoogle Scholar
Dumais, G.; Ellison, G.; and Glaeser, E. L.. “Geographic Concentration as a Dynamic Process.” Review of Economics and Statistics, 84 (2002), 193–204.CrossRefGoogle Scholar
Figueiredo, O.; Guimaraães, P.; and Woodward, D.. “Home-Held Advantage: Location Decisions of Portuguese Entrepreneurs.” Journal of Urban Economics, 52 (2002), 341–361.CrossRefGoogle Scholar
Fischer, J. H., and Harrington, J. E. Jr, “Product Variety and Firm Agglomeration.” Rand Journal of Economics, 27 (1996), 281–309.CrossRefGoogle Scholar
Frame, W. S., and White, L. J.. “Empirical Studies of Financial Innovation: Lots of Talk, Little Action?” Journal of Economic Literature, 42 (2004), 116–144.CrossRefGoogle Scholar
French, K. R., and Poterba, J. M.. “Investor Diversification and International Equity Markets.” American Economic Review Papers and Proceedings, 81 (1991), 222–226.Google Scholar
Goetzmann, W. N.; Massa, M.; and Simonov, A.. “Portfolio Diversification and City Agglomeration.” NBER Working Paper No. 10343 (2004).CrossRefGoogle Scholar
Grinblatt, M., and Keloharju, M.. “How Distance, Language, and Culture Influence Stockholdings and Trades.” Journal of Finance, 56 (2001), 1053–1073.CrossRefGoogle Scholar
Hau, H. “Location Matters: An Examination of Trading Profits.” Journal of Finance, 56 (2001), 1959–1983.CrossRefGoogle Scholar
Hong, H.; Kubik, J. D.; and Stein, J. C.. “Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers.” Journal of Finance, 60 (2005), 2801–2824.CrossRefGoogle Scholar
Huberman, G. “Familiarity Breeds Investment.” Review of Financial Studies, 14 (2001), 659–680.CrossRefGoogle Scholar
Ivković, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.CrossRefGoogle Scholar
Johnson, K. P. “Redefinition of the BEA Economic Areas.” Survey of Current Business, 75 (1995), 75–81.Google Scholar
Khorana, A. “Top Management Turnover: An Empirical Investigation of Mutual Fund Managers.” Journal of Financial Economics, 40 (1996), 403–427.CrossRefGoogle Scholar
Khorana, A.; Servaes, H.; and Tufano, P.. “Explaining the Size of the Mutual Fund Industry around the World.” Journal of Financial Economics, 78 (2005), 145–185.CrossRefGoogle Scholar
Lewis, K. K. “Puzzles in International Financial Markets.” In Handbook of International Economics, Vol. 3, Grossman, G. and Rogoff, K., eds. Amsterdam, The Netherlands: North Holland (1995).Google Scholar
Lewis, K. K. “Trying to Explain Home Bias in Equities and Consumption.” Journal of Economic Literature, 37 (1999), 571n608.CrossRefGoogle Scholar
Liang, K.-Y., and Zeger, S. L.. “Longitudinal Data Analysis Using Generalized Linear Models.” Biometrika, 73 (1986), 13–22.CrossRefGoogle Scholar
McFadden, D. L. “Conditional Logit Analysis of Qualitative Choice Behavior.” In Frontiers in Econometrics, Zarembka, P., ed. New York, NY: Academic Press (1974).Google Scholar
Porter, M. E.The Competitive Advantage of Nations. New York, NY: Free Press (1990).CrossRefGoogle Scholar
Shapira, Z., and Venezia, I.. “Patterns of Behavior of Professionally Managed and Independent Investors.” Journal of Banking and Finance, 25 (2001), 1573–1587.CrossRefGoogle Scholar
Syverson, C. “Market Structure and Productivity: A Concrete Example.” Journal of Political Economy, 112 (2004), 1181–1222.CrossRefGoogle Scholar
Villalonga, B. “Diversification Discount or Premium? New Evidence from the Business Information Tracking Series.” Journal of Finance, 59 (2004), 479–506.CrossRefGoogle Scholar
Zingales, L. “In Search of New Foundations.” Journal of Finance, 55 (2000), 1623–1653.CrossRefGoogle Scholar